Big news for those of us who never miss it. Better get your renewal in now, John.
A Magazine's Radical Plan: Make a Profit
By DAVID CARR - NEW YORK TIMES
For most of his career, David Bradley, the owner of The Atlantic Monthly, helped businesses innovate around seemingly intractable problems. Before buying The Atlantic in 1999, he built a successful consulting firm, the Advisory Board, that eventually went public. But after switching from consulting to owning, he realized that he had never come across something as dysfunctional as the economics of publishing magazines.
Despite significant circulation and advertising gains and a passel of journalism awards since he acquired the magazine from Mortimer Zuckerman, The Atlantic continues to lose millions of dollars a year. So Mr. Bradley, the consultant, advised Mr. Bradley, the magazine owner, to take several steps that are both radical and simple, at least in the publishing industry: charge readers more while shunning the cult of big circulation.
In 2004, The Atlantic Monthly will cut its rate base, the number of copies promised to advertisers, to 325,000 from 450,000 (the magazine's actual average circulation exceeded 500,000 last year). And readers will be asked to pay almost twice as much to subscribe ? about $30 instead of an average of about $16. The changes come after the magazine decreased its frequency to 10 times a year from 12, so the per-copy price is even higher.
"In my 20 years of strategy consulting, I don't know that I came across a more complex proposition than magazine profitability, or at least, ours," Mr. Bradley writes in a letter that will be sent to advertisers today. "The Atlantic is hardly Enron, but neither is it (any time soon) my third I.P.O."
In the letter, Mr. Bradley writes that he will lower ad rates as the number of subscribers declines and suggests that the magazine will be delivering truly engaged readers, not junk subscriptions from third-party sources.
For years, particularly since the Internet bubble burst, the publishing industry has been promising to charge consumers more and has proceeded to do exactly the opposite. According to Capell's Circulation Report, a magazine industry newsletter, the average price of a standard subscription has dropped 17 percent in the five years ending in 2002.
Common sense would suggest that during the biggest advertising downturn in more than a decade, publishers would ask consumers to pay a bigger share. But in 2002, the first year in which the Audit Bureau of Circulations has kept track of average annual subscription prices, the average price per copy rose one cent, according to Capell's June 2003 issue. Magazines like Harper's Bazaar, GQ and Vogue are charging less.
There are exceptions. The Economist has increased its subscription price over the years and now charges an average of $102 a year for its customers in the United States. Its closest rival in the United States on price is Time Inc.'s People, which charges $99.04, up from $96.76 a year ago. But a lush, beautifully produced magazine like Vanity Fair can still be had for an average of $16.21, and much lower if a consumer shops around, particularly on the Internet.
"The magazine industry has trained the American public to undervalue its product," the president of The Atlantic Monthly, John Fox Sullivan, said. "We are raising prices in a way that to our knowledge has never been done, and there are many people who are telling us that we are moving too quickly and we will regret it. But we instinctively believe that there is a core of readers who will pay a good price for this magazine."
The Atlantic Monthly is working from a position of manifest strengths and profound weaknesses. In the last three years, its newsstand sales have increased 94 percent while the average subscription renewal price has risen 35 percent. Its advertising pages were up 31 percent in the last two, very punishing years, and it has won five national magazine awards in the last two years.
But the reason Mr. Bradley and Mr. Sullivan are considering such a high-risk strategy is that the investment that drove those improvements has doubled losses at the magazine, to $8 million a year from $4 million, a company official said.
"There has been a 50-year tradition at the magazine of older male businessmen like myself managing The Atlantic as a philanthropy," Mr. Bradley said. "It was largely subsidized and dependent on finding the next Mort Zuckerman. I think it's possible I may be the last member of that generation, and we have to find a way to make this wonderful magazine support itself."
Dan Capell of Capell's Circulation Report said that The Atlantic had the right idea, although he did not expect many other magazines to follow suit.
"With the current advertising climate, I keep thinking you are going to see more people raising their subscription prices," he said. But "I doubt that it will have much of an influence on other people because they are too worried about their ad revenues"
David Carey, the publisher of The New Yorker, said of The Atlantic's plan: "Historically, this is really a `bet the franchise' move, and the people who have tried it before have lost. For better or worse, the modern-day publishing model is ad leveraged, not circulation leveraged, despite the efforts of some smart people to change that." Mr. Carey has successfully raised The New Yorker's subscription prices in recent years.
Despite advertisers' rhetoric that they prize the quality of circulation more than the quantity, the Hall of Fame for pioneers in circulation is small and littered with corpses. In the summer of 1995, D. Claeys Bahrenburg, then the chief executive of Hearst Magazines, announced that his company would lower the rate bases for 13 of its 15 magazines while raising advertising rates at the same time. Advertisers, none too pleased to be paying more for less, revolted, and Mr. Bahrenburg was out of a job before the end of that year.
But some advertisers are beginning to ask tougher questions about the nature and quality of circulation. With the implosion of sweepstakes magazine marketing (like Publishers Clearing House and American Family Publishers), publishers have turned to third-party suppliers, who often increase circulation through high-pressure telemarketing or door-to-door sales. The resulting subscribers renew at very low rates and may cause advertisers to wonder how much the magazine was wanted in the first place.
"We spend a lot of time looking at the audit statement," said Linda Thomas Brooks, executive vice president and managing director at GM Mediaworks, a media buying firm for General Motors. "The term that we use is `wantedness,' and I think The Atlantic's plan sounds like it will be a demonstration of that."
The Atlantic is not alone in its efforts. Jack Kliger, the chief executive of Hachette Filipacchi Media, has spoken about the need to charge the consumer more, and has acted on his beliefs. In February, for example, the company raised the basic subscription offer for Premiere, the movie magazine, to $12 a year from $10, while dropping the frequency to 10 times a year from monthly. The moves, which coincided with a rate-base cut to 500,000 from 600,000, effectively raised subscription rates by 45 percent.
"For an enthusiast magazine like Premiere, consumers are willing to pay more for quality editorial," said David J. Fishman, senior vice president and group publisher of Premiere. Mr. Fishman said that readers see value in the magazine's additional editorial pages and larger format.
According to the company, newsstand revenues ? the single copy price rose to $3.99 from $3.50 ? have increased 18.5 percent. Mr. Fishman said that renewals and for the magazine had increased as well.
Mr. Bradley holds The Economist out as a model, and he admires National Public Radio's ability to increase its listenership. He is experimenting with a membership concept that would try to pull more revenues out of readers, with news briefings, branded research and advice on topics like restaurants and wine. It is a difficult proposition, because The Economist offers analysis that many people need to compete, while The Atlantic has long narratives that are seen as good to know, but not essential.
How the advertising community will respond to The Atlantic's bold stroke will be revealed next year, when the lower rate base takes effect. "We don't need every 28-year-old ad buyer to think this is a wonderful idea," Mr. Bradley said. "We just need a certain number of people in the advertising community to see the reasonableness of what we are doing."
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